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Feasibility Study – A Guide for Critical Decision Making.pdf
1. Feasibility Study – A Guide for Critical
Decision Making
INTRODUCTION
Research has shown that there are two main reasons behind the downfall of
new business ventures. The first is that they fail to offer a product or service
the market wants at the right time and second, that the business simply ran
out of the cash it needed for business continuity either because its
product/service did not have the expected success, or it had overlooked
certain key assumptions relating to market demand and operating costs.
If you have a great idea to start a new business or intend to develop an idea
within an existing business, thorough research is essential. You need to find
out if:
There is a market for your idea.
Your idea is financially viable.
Any new business starts with an idea because of certain circumstances or
need.
Let us look at the examples of Airbnb and Uber. They both started at the right
time, i.e., during the 2008 recession, the circumstances demanded it, because
people who lost their jobs due to recession needed to survive through making
extra cash, where Airbnb allowed homeowners to let out room for travelers
while Uber allowed anyone with a car to become a cab driver. Regardless of
the origin of the idea, it is necessary to conduct certain market research to
ensure the success of the business and the achievement of profits; this
means to prepare feasibility study for the project. The decision to conduct a
feasibility study should not be taken lightly as it is a time-consuming process.
2. However, not doing a feasibility study can be more expensive in terms of the
poor decisions made resulting in failure of the business altogether.
A feasibility Study is largely number driven and ultimately tests the viability of
an idea or a new business opportunity. By assessing the market for your
concept, market competition, estimating financial viability, and identifying
potential pitfalls, you can make an informed choice about the achievability of
your entrepreneurial endeavor.
To effectively conceptualize the business plan, the entrepreneur must have
some initial and promising knowledge before beginning a detailed feasibility
report. This is a pre-feasibility stage that can be achieved by brainstorming
sessions with friends and family members in a confidential circle. If this is
complete, you can move on to the feasibility study once the concept seems to
receive a good response.
3. The elements to include in a feasibility study vary according to the type of
business venture and the kind of market opportunities identified. But the steps
listed below are main phase of any feasibility study process:
1. Market FeasibilityThe first step in the feasibility study is to study the
factors affecting supply and demand. The market feasibility study is an
important step to complete the next phase. It is necessary to identify the
market in which the product will be sold and check whether market is
controlled by intense competition. Understand whether the product/service
add value for an existing product/service or is it produced for the first time
in the market. It is also necessary to identify the consumer for the
product/service offered and the income group, target consumer age group,
gender, and other consumer characteristics so that the demand for the
product/service can be accurately estimated.
2. Technical FeasibilityIn this phase generally a group of engineers or
technical experts study the project’s technical aspects. They assess the
technology, machinery and technical equipment required to go forward
with the business and fully meet the estimated market demands. An
4. important element in the technical feasibility study is to determine the
production capacity to meet the estimated demand i.e., estimation of raw
material and labor requirements. The number of employees varies from
one business to another depending on the nature of the business. Based
on this analysis a decision on whether the technical resources are
available to convert the idea into reality shall be arrived.
3. Financial/Economic FeasibilityThe final phase of the feasibility study is
to prepare cash inflow and outflow forecasts based on all the evaluated
market and technical details. The financial forecasts will assess the cost of
the project, sales & profits, return on investment, investment payback
period, etc. Financial viability is a key factor for investors to participate in a
new business venture, so invested capital must demonstrate the potential
to produce an economic return for investors at least equivalent to that
available from other equally risky investments.The precision and reliability
of the study of financial feasibility depends on the accuracy of the data
used. As the business idea evolves and passes through pre-feasibility,
market feasibility and technical feasibility stages accuracy of information
being used in financial feasibility stage will be much reliable than during
idea inception stage. Calculations of financial feasibility need to be
performed with utmost caution and the complexity of assumptions depends
on the number of different variables to be considered relating to revenue,
operating & capital costs, structure of financing, etc.
Once the financial projections are accurately estimated, it also makes it
easier to conduct sensitivity analysis on key parameters, which makes it
possible for investors to envision different scenarios and possibly
mitigate risk associated with these parameters.
CONCLUSION
The decision to go/no-go is one of the most important in a new business
concept. Once you have decided to pursue a business idea, then a feasibility
study will be a major information source in making this decision. The findings
of the feasibility study should outline the several different scenarios which will
allow you to carefully analyze the financial results and challenge the
underlying assumptions so that you are convinced about the business
concept. This is the reason why a properly developed feasibility study is
critical in business decision making.
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Feasibility Study – A Guide for Critical
Decision Making
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